Universality of Infrastructure Services-Legal, Policy and Regulatory Framework (Telecom) Mohit Saraf...

Universality of Infrastructure Services-Legal, Policy and

Regulatory Framework (Telecom)

Mohit Saraf

Partner

Luthra and Luthra

Law Offices

TERI REGIONAL CONFERENCE DECEMBER 6, 2004

6th December 2004 Luthra & Luthra Law Offices © 2

Importance of USO obligation

Level Playing field for everyone Different level of infrastructure offers

different opportunities for growth


However there is enough evidence to show that teledensity is positively correlated with GDP growth

Therefore in order to increase teledensity there is a need to drive telecom penetration in rural areas

Today’s rural markets do not appear to be viable However what may not be viable today may

become viable tomorrow. USO fund can bridge viability gap by providing cushion needed for initial investment in rural telecom

Need for Universalising Access


Vast potential for exploiting telecom facilities in rural areas Increase access to info on urban markets for

farmers Showcase rural products and tourism Schools, hospitals and other public services can

be improved with access to internet Empirical evidence of faster growth of poorest 20

percent in telecom intensive economies FDI flows are also higher in telecom intensive

economies

Need for Universalising Access


Various options to finance USO Direct support from Government Budget Seed finance by development bank or

agency Licensing or spectrum fees and auctions Operator Revenue Contribution [INDIA] Interconnect levies Virtual Fund Transfers


Pre USO Fund Scenario in Indian Telecom Sector Pre-USO support for rural obligations

Access Deficit Charges (ADC) to support subsidized low cost rural telecom tariffs

Reimbursement of license fees and government grants to incumbent to support ‘legacy’ networks


The USO Fund Advantage

Post 2002 we have chosen to adopt a USO Fund supported by transparent levies on all operators supplemented with government grants. Disbursement is through a bidding process

Purpose of USO fund and bidding process is to make the subsidy smart

Ensure that there is no pilferage and that the entire subsidy gets to the market

Deviates from the user pays principle but achieves larger goals

Smart subsidies also ensures that the cost of subsidy paid out is minimal


USO – Legal and Policy Framework Overview

New Telecom Policy 1999 (“NTP 99”) spelt out guiding principles and targets for USO

Enactment of enabling statutory provisions in 2004 , with retrospective effect from 2002

Part IIA, of the Indian Telegraph Act, 1885 inserted by Indian Telegraph (Amendment) Act, 2003 constitutes USO Fund

Part X, Indian Telegraph Rules, 1951 inserted by Indian Telegraph (Amendment ) Rules 2004 details administration of the USO Fund (“Rules”)

Guidelines for implementation of Universal Service Support issued by DoT(“Guidelines”)


USO Fund

Controversy over statutory basis of USO Fund and its disbursement Attempt to make USO fund operational without

enabling statutory framework Since USO Fund did not exist MoF unable to

release USO proceeds Enabling legislation and rules made in 2004

wref from 2002 Approx INR 3400 collected from 2002 will be

available for disbursement from this year


Major Legal, Policy and Regulatory issues relating to USO

Issues relating to the purpose for which the USO Fund is used

Ensuring that USO disbursements are made in a transparent and non-discriminatory manner

Ensuring accountability of Universal Service Provider (“USP”)

Enabling Universal Service through non-USO Fund based options


Defining USO Objectives The definition of USO in Policy not strictly

technology neutral No rationale for prescribing low speed data

services Does not clearly envisage the possibility of

new developments like Voice over Internet Protocol (VoIP)

But TRAI recommended Rules have created enabling framework even though there were gaps in Policy


Enabling framework created by Rules Areas not clarified in Policy spelt out in detail

in Rules Telecom facilities which would qualify for

USO Fund support clarified Possible because Rules laid before Parliament Bidding mechanism laid down in Rules

enables USO Funds to get ‘value for money’ and incentivise efficient technology-cost mix

Defining USO Objectives


Defining USO Objectives However further clarity in the statutory

framework would be desirable Priority of Stream I (Universal Access)

over Stream II (Universal Service) as per TRAI recommendations and as provided in Guidelines (DoT) not enunciated in Rules (Rule 525)

Detailed bidding procedure provided in Guidelines don’t find mention in Rules (multi layered bidding).

Need to examine whether some of the provisions mentioned in the Guidelines can be incorporated in the Rules


Principles of Subsidy Regulation Law,Policy & Regulation should ensure

that Subsidies are targeted Subsidy disbursements are transparent

Non- Discriminatory/Level playing field Avoid Duplication

Subsidies obtain maximum value for money Universal Service Providers are held

accountable for proper discharge of their obligations


USO Fund – A Smart Subsidy Presently Rules provide for bidding

process among eligible operators thus making the USO a ‘Smart Subsidy’ Ensures that USO Fund disbursements are

transparent and made in a non-discriminatory manner

Ensures that the services are allocated to most efficient service provider and thus introduces benefits of competition

Reduces reliance on approximate cost estimates

Ensures matching of costs and subsidies


USO Fund DisbursementsStage set for phasing out of non-USO Fund subsidiesIncumbent currently beneficiary of Access Deficit Charge (ADC), reimbursement of license fees and grants for providing low cost rentals and maintenance of legacy networksSince post 2001 USO commitments to cover capex as well as opex, above benefits to be phased out Will minimize overlapping of subsidy provisions and ensure that incumbent is not overcompensated


Accountability of Universal Service Providers Experience with Fixed Service Providers

Rural Roll out obligations Earlier, Fixed Service Providers had not

discharged USO obligations Rural Roll out obligations were a condition

of FSP Licence. Fixed Service Providers preferred to pay

LD’s rather than perform their obligations


Administrator to enter into Agreement with Universal Service Providers.

There is also a suggestion for creation of ‘niche operator’ under the proposed Unified Licensing Framework who may be required to roll-out networks in rural areas

The Licenses/Agreements should be carefully drafted to adequately provide for safeguards in case USP/niche operators unable to fulfil obligations

Accountability of Universal Service Providers


Universal Service beyond USO Fund

Present Fund corpus and accruals in coming years not likely to be sufficient for fulfilling all Universal Service Targets

TRAI has therefore suggested number of options

Niche operators Waiver of Spectrum Fees and Sharing of Infrastructure


Niche Operators

Introduction of Niche operators with reduced license fee

Need to safeguard against cherry picking by appropriate bundling of areas with right to consumer to demand service provision (‘distribution licensee’ in electricity sector)

Better to limit number of operators so that unviable market is not further fragmented

License can be awarded to operator who quotes highest license fees

Further competition can be introduced after a fixed number of years (say 5) after the area ceases to be a Net Cost area.


Universal Service beyond USO Fund TRAI options (contd)

Waiver of Spectrum Fees If across the board then this would make the rural

market viable without introducing market distortions Sharing of infrastructure

If incumbent is made to unilaterally required to share infrastructure might raise concerns of compensation and non-discrimination

Therefore alternatively sharing of infrastructure through models of ‘open access’ (Electricity Sector) could be utilized


THANK YOU!

Universality of Infrastructure Services-Legal, Policy and Regulatory Framework (Telecom) Mohit Saraf...

Documents

Transcript of Universality of Infrastructure Services-Legal, Policy and Regulatory Framework (Telecom) Mohit Saraf...